Rumored Bailout for Greece Supports Euro

* The dollar closed mixed versus its counterparts on Friday. Greek default risks eased and reports showed that federal prosecutors are weighing criminal fraud charges against Goldman Sachs. US Q1 2010 GDP rose at a 3.2% annualized pace, in line with expectations. Stronger-than-expected private consumption and business investment bode well for future economic growth. The S&P 500 plunged 20.09 to 1,186.69 on weaknesses in financial and technology stocks. Goldman Sachs fell over 9%. The euro surged on speculation of a bailout plan for Greece over the weekend. European Commission President Jose Manuel Barroso issued assurances that a deal will be finalized “very soon, meaning, in the next days.” We believe an EU decision may not be made before the German local election. Sterling was pressured by UK election uncertainty. The aussie rose as Australia’s credit expanded. The Canadian dollar fell as Bank of Canada Governor Mark Carney indicated the strong loonie may delay interest-rate hikes.
* Unable to penetrate the 94.50 resistance for a second time, the USD/JPY closed little changed for the week. The Bank of Japan kept its key interest rate at 0.10%, maintained the current level of special monetary stimulus and reiterated its pledge for easy monetary policy. Japanese economic numbers were mixed. We expect a new assault on the 94.50 resistance. If this is broken, the USD/JPY will advance to the 97 area.

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Financial and Economic News and Comments

US & Canada

* US GDP grew at a 3.2% annualized rate in Q1 2010, a third consecutive quarterly expansion, after a 5.6% annualized pace in Q4 2009, advance GDP data released by the Commerce Department showed, pointing to sustainable US economic growth. The largest positive contributors to Q1 GDP growth were personal consumption, inventories, and business investment in equipment and software, while the weakest components were net exports, business investment in structures, and government spending. Inventories contributed 1.6 percentage points to GDP. Personal consumption rose at a 3.6% annualized pace in Q1, the largest gain since Q1 2007, after a 1.6% annualized rate in Q4. Core PCE, the Federal Reserve’s preferred price measure, increased at a 0.6% annualized rate in Q1, showing inflation was at the lowest level since records began in 1959 and decelerating from a 1.8% annualized pace the prior quarter. The GDP price index advanced at a 0.9% annualized rate in Q1 after a 0.5% annualized pace in Q4.

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* The employment cost index was up 0.6% q/q in Q1 2010 after a 0.5% q/q increase in Q4 2009, according to a Labor Department report.
* The Chicago business barometer advanced to a higher-than-expected 63.8 in April from 58.8 in March, indicating US business activity expanded beyond the 50 growth level for a seventh straight month and reached the highest level since April 2005, according to the Chicago Report by Kingsbury International, Ltd. and the Institute for Supply Management – Chicago, Inc. The new orders index increased to 65.2 in April from 61.8 the prior month, suggesting new orders expanded at a faster pace. The employment index climbed to 57.2 from 53.1, showing employment expanded for a fourth consecutive month in April. The prices paid index advanced to 71.4 from March’s 66.6, indicating prices paid rose to the highest level since September 2008. Order backlogs and supplier deliveries approached 10-year highs.
* The Reuters/University of Michigan final consumer sentiment index slipped to 72.2 in April (vs. preliminarily reported 69.5) from 73.6 in March, showing US consumer confidence declined slightly this month from March but improved significantly from April 2009’s 65.1 level, according to the latest Thomson Reuters/University of Michigan surveys of consumers. The current economic conditions index lowered to 81.0 in April (vs. preliminarily reported 80.7) from 82.4 in March, compared with 68.3 a year earlier. The consumer expectations index declined to 66.5 (vs. preliminarily reported 62.3) from March’s 67.9, compared with April 2009’s 63.1.

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* Canada’s GDP grew 0.3% m/m in February, in line with forecast, after a 0.6% m/m advance in January, registering a sixth straight monthly expansion and signaling the Canadian economy continued to strengthen, according to GDP data from Statistics Canada. February GDP growth was led by a 1.2% m/m gain in manufacturing and spending related to the Vancouver Winter Olympics. February GDP rose 1.8% y/y.
* Canada’s industrial product prices fell 0.4% m/m in March, the first fall in five months, due to the effect of the Canadian dollar’s rise against the USD, after an upwardly revised 0.1% m/m increase in February, a separate report from Statistics Canada showed. Raw materials prices advanced 0.8% m/m in March, led by higher prices for mineral fuels, after a 0.4% m/m increase the prior month; thus, continuing the upswing that began in January 2009. The IPPI fell 1.3% y/y in March, registering the largest fall in four months and continuing its consecutive year-over-year declines since March 2009. The RMPI rose 14.9% y/y, slowing from February’s 27.8% y/y growth.

Europe

* The eurozone consumer-price inflation rate rose as forecast to 1.5% y/y in April, the fastest since December 2008, from 1.4% y/y in March, according to flash CPI data released by Eurostat.
* Eurozone unemployment rose a seasonally adjusted 101,000 to 15.808 million in March, Eurostat reported. The seasonally adjusted unemployment rate was unchanged as forecast at 10.0%, the highest since August 1998, compared with March 2009’s 9.1%.
* The GfK NOP UK consumer confidence index decreased to -16 in April from -15 in March, indicating UK consumer sentiment unexpectedly fell to a 3-month low ahead of the general election but improved significantly from April 2009’s -27 level, according to data from GfK NOP. Consumer sentiment about prospects for the UK economy in the next 12 months declined, with the expectations gauge slipping to -1 in April from 0 the prior month.

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* Stabilizing at a high level, the KOF Swiss economic barometer increased as forecast to 1.99 in April from an upwardly revised 1.96 in March, according to data from the Konjunkturforschungsstelle Swiss Institute for Business Cycle Research. Switzerland’s year-on-year economic growth rates should be “continuously positive in the next few months,” the institute said.

Asia-Pacific

* Japan’s core consumer prices, which exclude fresh food, fell for a 13th straight month in March, falling as forecast 1.2% y/y, the same rate as February, CPI data from the Statistics Bureau showed, suggesting prolonged deflation remains a major concern to Japan’s economic recovery. The CPI excluding food and energy declined as expected 1.1% y/y in March, the same pace as February. Tokyo’s core CPI, a leading indicator for nationwide price trends, fell 1.9% y/y in April after a 1.8% y/y decrease in March.

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* Japan’s seasonally adjusted unemployment rate unexpectedly increased to 5.0% in March from 4.9% in February, according to data from the Statistics Bureau. The job-to-applicant ratio, a leading indicator of employment trends, advanced to 0.49, a third consecutive monthly improvement and suggesting there were 49 positions for every 100 candidates, following February’s 0.47.
* The Japanese manufacturing sector expanded above the 50 growth level for a 10th consecutive month in April and reached its highest level in four months. The seasonally adjusted Nomura/JMMA PMI increased to 53.5 this month from 52.4 in March, a PMI report released by Markit Economics showed, “suggesting manufacturing operating conditions remain solid.” Manufacturing employment grew for the first time since July 2008.
* Japanese household spending increased a more-than-expected 4.4% y/y in March, the seventh gain in eight months and the largest since May 2004, after a 0.5% y/y decline in February, according to a separate report from the Statistics Bureau.
* Japan’s seasonally adjusted industrial production increased a less-than-expected 0.3% m/m in March, the 12th gain in 13 months, after a 0.6% m/m decrease in February, preliminary March IP data from the Ministry of Economy, Trade and Industry showed, with the IP index increasing to 94.0 from February’s 93.7. March IP grew 30.7% y/y nsa, a fourth consecutive year-on-year advance, following a 31.3% y/y February rise.

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* Japan’s labor cash earnings unexpectedly increased 0.8% y/y to ¥275,637 ($2,925) in March, the first gain in 22 months, after a 0.6% y/y decline in February, according to data from the Ministry of Health, Labor and Welfare.
* Japanese housing starts fell a less-than-anticipated 2.4% y/y in March, a 16th straight year-on-year fall, after a 9.3% y/y decrease in February, data from the Ministry of Land, Infrastructure and Transport showed. Annualized housing starts increased to 854,000 from February’s 794,000. Construction orders rose 42.3% y/y in March, reversing a 20.3% y/y February drop.
* Australian new home sales increased 0.9% m/m in March after a 5.2% m/m decline in February, according to a report by the Housing Industry Association. “Rising interest rates and uncertainty over future rate increases in 2010 were weighing heavily on the prospects for a sustained new home building recovery,” the HIA said.
* Australia’s private-sector credit grew 0.5% m/m in March after a 0.4% m/m increase in February, the Reserve Bank of Australia reported. Private-sector credit rose 2.1% y/y, following February’s 1.6% y/y advance. Housing credit grew 0.7% m/m for a second month in March and rose 8.5% y/y. Other personal credit was up 0.5% m/m for a second month, up 2.4% y/y. Business credit increased 0.1% m/m in March but fell 6.9% y/y.

Source: Hans Nilsson

30.04.2010